Econometric Policy Evaluation

Lucas, R. E. (1976). Econometric Policy Evaluation: A Critique. Carnegie-Rochester Conference Series on Public Policy, 2231(76), 19-46.

Type

Journal article

Intellectual base

Primary research

Year

1976

DOI

10.1016/s0167-2231(76)80003-6

Link

https://doi.org/10.1016/S0167-2231(76)80003-6

Cited from

economics_finance, sociology_anthropology, systems_cybernetics

Cited by

7 citations across 7 artifacts.

Each citation links to the sentence it supports in the citing article.

Primes

• Anticipatory Neutralization
  • The Lucas critique generalises this methodologically: agents' decision rules are not policy-invariant, so reduced-form policy evaluations that assume fixed behavioural relationships break down precisely when the policy changes.
• Marginal Analysis
  • The Lucas critique (Lucas 1976)

    This sourceNorth-Holland. Lucas critique policy-regime-changes agent-expectations model-invalidation reflexivity in economics.

• Micro Macro Linkage
  • In economics, the micro-foundations of macroeconomics aggregate household and firm decisions into GDP and inflation while macro variables feed back to shape budget constraints and investment, and the Lucas critique is precisely the warning that ignoring the downward edge yields broken macro models.

    This sourceShows that historically estimated macro relationships break when policy changes the regime, because they were generated by agents optimizing under the prior regime — the downward-edge / non-self-sufficiency warning.

• Non-Stationary Objective
  • In policy and regulation, rule-making chasing innovation, monetary policy under shifting natural rates, and the Lucas critique are non-stationarity arguments.
• Reflexivity (Self-Reference)
  • The Lucas critique (1976)

    This sourceNorth-Holland. Lucas critique policy-regime-changes agent-expectations model-invalidation reflexivity in economics.

• Self-Defeating Prediction
  • This is the rational-expectations equilibrium for self-defeating forecasts, and it is the structural content of the Lucas critique: a model that treats system parameters as invariant under intervention will be invalidated precisely by the behavioural response to its own predictions.

    This sourceArgues that estimated model parameters are not invariant under policy intervention because agents' behavior responds to the predicted policy — the formal content of self-defeating forecasts.

Mechanisms

• Scenario Demand Stress Test
  • Its failure mode is the Lucas critique in operational form

    This sourceWarns that policy changes can alter agents' decision rules and the econometric relationships used to evaluate a new regime.

Verification

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